Global base oils supply rose close to a multi-year high in January, boosted by a surge in China’s output and a jump in Middle East volumes, masking regional weaknesses and leaving parts of the market more exposed to the disruptions that followed.

Total supply rose to more than 3 million tonnes in January, up from more than 2.90 million tonnes in December and the second highest level since mid-2021, EIA, METI, Ministry of Energy and other government data showed.

The increase masked weaker availability in the Americas and lower-than-usual supply in Europe, leaving those markets more exposed when disruptions emerged from late-February.

Key Highlights

·         Asia’s January base oils supply, including China, rose to the highest in more than five years, with the December volume the second highest during that period.

·         Americas’ base oils supply fell to a five-month low as US output dipped.

·         Europe’s base oils supply rose to a four-month high but fell by more than 10% year on year and for a fifth straight month.

·         Middle East supply rose to a fourteen-month high amid a rebound in flows from Qatar, UAE and Saudi Arabia.

Market Repercussions

The strength in January supply did little to ease underlying tightness outside Asia.

China’s base oils output extended its rise in February and March, leaving it better positioned to offset the immediate impact of the supply disruptions from the end of February.

Europe’s structurally lower production base, combined with the prospect of maintenance and run cuts, pointed to continued supply constraints.

The January slowdown in Americas supply highlighted that region’s reliance on US production, with any operational disruptions magnifying that exposure.

Those vulnerabilities were already in place before the slump in Middle East flows from end-February removed a swathe of Group III supply from global markets.